Proposed New Legislation Would Bar Class Action Waivers

Many employers have attempted to require current and former employees to pursue claims individually and not by way of class action lawsuits by requiring employees to agree to arbitrate individually whatever claims they might have.

The Los Angeles Daily Journal reports today that the Consumer Attorneys of California, a trade association of plaintiff's attorneys, is sponsoring a California Senate Bill that would make class action waivers unenforceable. State Senator Noreen Evans (D-Santa Rosa) is expected to introduce today a bill stating as follows:

Any term in a contract of adhesion purporting to waive the right to join or consolidate claims, or to bring a claim as a representative member of a class or in a private attorney general capacity shall be deemed to lack the necessary consent to waive that right, and is void.

Today's action is a reaction to the landmark decision of the Supreme Court of the United States in AT&T Mobility LLC v. Vincent Concepcion, previously discussed here, reversing a decision of the United States Court of Appeals for the Ninth Circuit holding (1) that an arbitration agreement between AT&T and its cell phone customers requiring customers to bring claims in their "'individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding'" is unconscionable and therefore unenforceable because,"AT&T had not shown that . . . arbitration adequately substituted for the deterrent effect of class actions" and (2) that the basis for the finding of unconscionability "was not preempted by the [Federal Arbitration Act ('FAA')]." In other words, the Supreme Court rejected lower courts' analyses of the issue and held that arbitration agreements are generally enforceable according to their terms under the FAA, and neither California courts nor other courts can evade the FAA merely by declaring an arbitration agreement to be "unconscionable" in whole or in part. The Court explained "the judicial hostility towards arbitration that prompted the FAA had manifested itself in 'a great variety' of devices and formulas' declaring arbitration against public policy."

Although the Supreme Court's landmark ruling concerned an arbitration provision of a consumer contract and not an arbitration agreement between an employer and an employee, we think the holding and the reasoning of the decision apply with equal or nearly equal force to arbitration agreements between employers and employees. In Southland Corp., v. Keating, the Supreme Court held the FAA applies to state courts and is intended to preempt state anti-arbitration laws to the contrary, and in Circuit City Stores, Inc. v. Stain Clair Adams, the Supreme Court held the FAA generally applies to employment contracts.

The Consumer Attorneys of California describe the bill as one of the group's top priorities for 2012, stating:

The United States Supreme Court in April 2011 issued a devastating 5-to-4 opinion that dramatically tilted the playing field in favor of corporations in class actions. Concepcion set a dangerous precedent by allowing AT&T to enforce a contract provision that requires customers to arbitrate their disputes individually, rather than class-wide. (AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, 179 L.Ed.2d 742.) CAOC believes that legislation is needed to restore the right to join claims while not interfering with the Federal Arbitration Act (FAA) or frustrating its purpose. CAOC is working with the Consumer Federation of California and labor groups and will be introducing legislation authored by Senate Judiciary and Women's Caucus Chair Noreen Evans (D-Santa Rosa).

It remains to be seen whether the bill will be adopted and remains to be seen whether if adopted the legislation would effectively skirt the FAA Act and the Supreme Court's decision in Concepcion. In any event, we will monitor this new proposed legislation and report here further developments.

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